Resource World Magazine

78 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 1 8 Oil Patch Report by Bruce Lantz IT MAY TAKE A WHILE, and there will be/have been casualties along the way, but sometime in the future the world may view the oil and gas industry downturn as a good thing, even for the industry. That's a hard pill to swallow for the hundreds of companies that were overextended going into the downturn and didn't survive the first couple of years. And a harder pill yet for the employ- ees laid off by the tens of thousands across North America as the work disappeared when companies failed or at least retrenched. 2017 was another "volatile and transitional year" as companies adapted to the weakest commodity environment in play since the fall of 2014, said Frederick Lawrence, Vice-President of Economics and International Affairs for the Independent Petroleum Association of America (IPAA). The year started positive but hit a speed bump in April-May when prices again dropped. "This was yet another challenge for companies that were work- ing hard to become more efficient and lower their break-evens and hopefully achieve the (holy) grail of cash flow neutrality or the more elusive positive cash flow," Lawrence said. But industry officials, even in the hardest-hit service sector, feel that some valuable lessons may have been learned, lessons which will make the oil and gas sector stronger in the days and years ahead. "The service sector had to adapt, …lower costs, do more with less, get better through technology application to gain a competi- tive edge," said Mark Salkeld, President and CEO of the Petroleum Services Association of Canada (PSAC). He said a "notable success" for the service sector has been the ability of companies "to a certain degree" to find cost-cutting effi- ciencies, "which hurt immensely but in turn helped producers with their margins enough so that we went back to work …being busier but not making great margins." It has been a tough period for producers as well as the service sector. Brent Crude oil prices dropped from $112 a barrel in 2014 to $43.74 in 2016 and hovered just above $54 this year, and West Texas Intermediate prices slid from $105 a barrel to $30.32 in 2016 and just under $50 this year. Meanwhile, natural gas slid from $4.90 mmBTU in early 2014 to as low as $1.73 in early 2016, climbing back to the $3 range in 2017 (US$). The sector is littered with lowered performances, one example being Husky Energy Inc. [HSE-TSX], which cut its capital spend- ing forecast to $2.2 billion-$2.3 billion from $2.5 billion-$2.6 billion, due in part to cost efficiencies. While it reported a profit of $136 million on gross revenue of $4.72 billion in the latest quar- ter, up from $3.52 billion in the same quarter last year, profit slid to 13 cents per share compared with a profit of $1.39 billion or $1.37 a share a year ago. Annual production is expected to remain within the 2017 forecast of 320,000-335,000 boe per day. Canadian Association of Petroleum Producers (CAPP) spokes- woman Tonya Zelinsky said the drop in commodity prices since 2014 has had a "meaningful impact" on the oil and natural gas sector, which is continuing to work through issues on industry competitiveness and market access. Challenges this year included the tanker moratorium proposed for British Columbia's northwest OUTLOOK 2018 OIL & GAS

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